Bill Ackman

Hash of the titan

Pershing Square and its boss are having a bad summer

HUBRIS is the character flaw that brings down the protagonist in Greek tragedy. Its workaday incarnation, cockiness, is causing trouble for Bill Ackman, a modern-day hedge-fund titan. Mr Ackman has (so far) come off worse in a series of brawls with his peers. It has been a costly experience for investors in his fund, Pershing Square. It may prove to be a humbling one for him personally.

Mr Ackman has been involved in two unusually public spats. A three-year battle to overhaul J.C. Penney, a troubled American department-store chain, ended on August 12th when he resigned from its board. Mr Ackman’s departure came after he failed to oust J.C. Penney’s top brass in a series of acerbic (and leaked) letters. The dispute further dented the company’s share price, which has more than halved since Mr Ackman first invested.

The second feud has become a staple of cable financial television. At the end of 2012 Mr Ackman loudly proclaimed that Herbalife, a dietary-supplements company, was a pyramid scheme whose shares would tumble once regulators started prying into it. He wagered a reported $1 billion on the company going bust, by selling borrowed shares which will later have to be bought back and returned to their owners. That will be expensive given a sharp rally in Herbalife’s stock this year.

Its vigorous rebound is partly down to Mr Ackman’s rival hedgies, many of whom have been irked by his brash style and sharp elbows. Carl Icahn and George Soros, two veteran investors, are among those who have bought into the firm. Mr Icahn has bragged about administering a financial bloody nose to Mr Ackman, with whom he has previously tussled in court.

Mr Ackman says Herbalife and J.C. Penney are irritants in an otherwise healthy portfolio. Combined, they have cost Pershing Square an estimated $1 billion or so, out of $12 billion in assets. Despite its travails, the firm’s biggest fund is up by 3.7% since the start of the year. But that is still lousy for an investment pot focused on American shares, which have climbed by nearly 20% this year. Some $5 billion of the fund’s cash is tied up in Procter & Gamble, a blue-chip consumer-goods company, and Canadian Pacific, a rail company that boomed last year after Mr Ackman successfully agitated for new management, but has been less exciting since. Alongside other investments such as Burger King and a shopping-mall owner, Pershing Square’s holdings are tracking the market rather than beating it. Once its hefty fees are levied, that is a poor deal for investors.

Fortunes change quickly in the hedge-fund world. Mr Ackman had to wait for several years for one of his most lucrative bets, against MBIA, a bond-insurance firm, to come good. He got the last laugh—and a $1.1 billion pay-off—when it did. He insists Herbalife will tumble, given time. Pershing Square still owns 18% of J.C. Penney, which can now only surprise on the upside. It recently took a whopping $2.2 billion, 9.8% stake in Air Products, an industrial-gas company. If that ends up anywhere as successful as Mr Ackman’s greatest hits, investors will soon forgive his recent missteps. If he falters again, he may find himself cast out of the pantheon of Wall Street greats.